Steve Judge in USA Today: Private Equity is a Positive Force for the Economy

Opposing view: ‘The ultimate risk-reward model’

By Steve Judge

You wouldn’t know it from the recent political rhetoric, but private equity is a positive force in America’s economy. There are more than 2,300 private equity firms that operate all across the country. In 2010, they invested nearly $150 billion in U.S. companies.

A typical private equity firm raises money from investors, the majority of them pension funds, university endowments and charitable foundations. The firm pools the money into funds and then uses it to buy companies. In some cases, the companies are promising enterprises in need of capital to grow and expand. In other cases, they are “fixer-uppers” badly in need of repair. The private equity firm injects capital, but it also provides fresh thinking, a new strategy and managerial expertise, all focused on a single objective: creating a more valuable company.

The model only works if the private equity firm improves the company. If it doesn’t, it can’t sell the company for a profit and return the money to its investors. The success stories range from auto-part manufacturing companies in the Midwest to a newly reopened refinery in Delaware to a number of growing enterprises in Silicon Valley.

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